Goldman Sachs avoiding the 50p rate proves the folly of cutting it too soon

The 45p rate gets an artificial boost while 50p is made worse in comparison.

Goldman Sachs is considering whether to defer bonuses for its employees into the new tax year, starting 6 April, in order to avoid the 50p tax rate.

The Guardian's Jill Treanor reports:

A number of banks are known to have considered whether to make the move, which would save their top employees thousands of pounds. But City sources believe many of them have rejected the idea to avoid any negative publicity in the wake of the row surrounding corporation tax paid by Starbucks in the UK.

The Wall Street firm – which publishes its full year results on Wednesday and tells staff their bonuses for 2012 shortly afterwards – is not thought to be considering changing the way the bonuses for 2012 are handed out. The proposal being considered would benefit parts of bonuses deferred from the years 2009, 2010 and 2011, which are due to be handed to staff this year in the form of shares.

The move underlines the lack of evidence available that the 50p rate actually hurt revenues. HMRC's analysis in March last year determined that the optimal tax rate was 48 per cent, a figure which 1) didn't justify cutting the rate to 45 per cent and 2) was only derived due to a specific statistic – TIE, taxable income elasticity – being given a value of 0.45. Given studies cited by HMRC for TIE showed it being anywhere from -0.6 to 2.75, there's rather a lot of uncertainty in that analysis.

But the bigger problem for evidence of the tax cut's effects is that, in cutting the 50p rate so rapidly, the Chancellor destroyed the possibility that we might actually get some useful data. The most effective way to avoid the tax is to shift income forward or backward. As a result, the first year it was in operation revealed that £6.6bn of taxable income had been shifted forward by a year; and we now know that this year, the last it will be in operation, a significant chink of income will be shifted back to the 2013/14 tax year.

Add in the fact that even HMRC assumed that some income in 2011/12 will have been declared in 2009/10, and some more will have been coincidentally forestalled to 2012/13 (when it could be forestalled further to 2013/14), and it is clear: there has not been a single year when a "normal" amount of tax was paid at the 50p rate. Every year it was in operation will have resulted in an artificially depressed take.

Similarly, the 45p rate will, for the first few years of its operation, have an artificially boosted take. It will look far more effective at discouraging tax avoidance than it actually is.

Consider this a warning, then: 2014 will see a lot of attempts to misuse data to prove a point. Don't take it at face value.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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I was wrong about Help to Buy - but I'm still glad it's gone

As a mortgage journalist in 2013, I was deeply sceptical of the guarantee scheme. 

If you just read the headlines about Help to Buy, you could be under the impression that Theresa May has just axed an important scheme for first-time buyers. If you're on the left, you might conclude that she is on a mission to make life worse for ordinary working people. If you just enjoy blue-on-blue action, it's a swipe at the Chancellor she sacked, George Osborne.

Except it's none of those things. Help to Buy mortgage guarantee scheme is a policy that actually worked pretty well - despite the concerns of financial journalists including me - and has served its purpose.

When Osborne first announced Help to Buy in 2013, it was controversial. Mortgage journalists, such as I was at the time, were still mopping up news from the financial crisis. We were still writing up reports about the toxic loan books that had brought the banks crashing down. The idea of the Government promising to bail out mortgage borrowers seemed the height of recklessness.

But the Government always intended Help to Buy mortgage guarantee to act as a stimulus, not a long-term solution. From the beginning, it had an end date - 31 December 2016. The idea was to encourage big banks to start lending again.

So far, the record of Help to Buy has been pretty good. A first-time buyer in 2013 with a 5 per cent deposit had 56 mortgage products to choose from - not much when you consider some of those products would have been ridiculously expensive or would come with many strings attached. By 2016, according to Moneyfacts, first-time buyers had 271 products to choose from, nearly a five-fold increase

Over the same period, financial regulators have introduced much tougher mortgage affordability rules. First-time buyers can be expected to be interrogated about their income, their little luxuries and how they would cope if interest rates rose (contrary to our expectations in 2013, the Bank of England base rate has actually fallen). 

A criticism that still rings true, however, is that the mortgage guarantee scheme only helps boost demand for properties, while doing nothing about the lack of housing supply. Unlike its sister scheme, the Help to Buy equity loan scheme, there is no incentive for property companies to build more homes. According to FullFact, there were just 112,000 homes being built in England and Wales in 2010. By 2015, that had increased, but only to a mere 149,000.

This lack of supply helps to prop up house prices - one of the factors making it so difficult to get on the housing ladder in the first place. In July, the average house price in England was £233,000. This means a first-time buyer with a 5 per cent deposit of £11,650 would still need to be earning nearly £50,000 to meet most mortgage affordability criteria. In other words, the Help to Buy mortgage guarantee is targeted squarely at the middle class.

The Government plans to maintain the Help to Buy equity loan scheme, which is restricted to new builds, and the Help to Buy ISA, which rewards savers at a time of low interest rates. As for Help to Buy mortgage guarantee, the scheme may be dead, but so long as high street banks are offering 95 per cent mortgages, its effects are still with us.